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UNCLAS SECTION 01 OF 04 LONDON 000227 
 
SIPDIS 
 
DOE FOR SHRIER, PERSON 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EINV UK
SUBJECT: DECEMBER ENERGY MINISTERIAL IN LONDON 
 
¶1. (SBU)  Summary:  Ministers and high-ranking officials from 
27 countries, leading international energy and financial 
institutions, pledged to work together to reduce oil price 
volatility, at the HMG-hosted London Energy Meeting on 
December 19 in London.  Participants agreed that the recent 
price surges followed by a near collapse in prices have 
created such uncertainty in the market to delay, if not 
derail, investments in energy projects.  Many of the 
attendees blamed speculators for triggering the price spikes, 
though the U.S. delegation, headed by Acting Deputy Secretary 
of Energy Jeffrey Kupfer, maintained that prices were in line 
with historic levels and that transparency, including 
uncertainty about inventories, was a significant factor. 
Independent experts, including the Cambridge Energy Research 
Associates (CERA), also disputed the claim that speculators 
played a decisive role.  Several officials from Middle 
Eastern oil producing states called for oil prices to be 
maintained at $70 to $75/barrel to encourage investment.  The 
meeting concluded with a consensus to form an experts' 
working group that would examine questions of production and 
price volatility, among other issues, in the run-up to the 
2010 International Energy Forum Ministerial in Mexico.  End 
Summary. 
 
The Major Players 
¶2. (SBU) The London meeting was held as a follow-up to the 
June Jeddah meeting of oil producing and consuming nations. 
Thirty-eight countries were invited, of which 27 attended. 
The U.S. was represented by Acting Deputy Secretary of Energy 
Jeffrey Kupfer, Acting Energy Assistant Secretary Jonathan 
Shrier, and Deputy Assistant Secretary of State for Energy, 
Commodities and Sanctions, Doug Hengel.  Ministers who 
attended were Hussain al-Sharistani, Minister for Petroleum, 
Iraq; Gholmhosssein Nozari, Minister for Petroleum, Iran; Ali 
I Naimi, Minister of Petroleum and Mineral Resources, Saudi 
Arabia; Jose Maria Botelho de Vaconcelos, Minister For 
Petroleum, Angola; Chakib Khelil, Minister for Energy, 
Algeria; Lisa Riatt, Minister for Mines and Energy, Canada; 
Amin Sameh Fahmy, Minister of Petroleum, Egypt; Jean Louis 
Borloo, Minister for Ecology and Energy, France; Michael 
Glos, Federal Minister of Economics, Germany; Claudio 
Scajola, Minister for Economic Development, Italy; Toshihiro 
Nikai, Minister of Economy, Japan;  Odein Ajumogobia, 
Minister for Petroleum, Nigeria; Terje Riis-Johansen, Minster 
for Petroleum and Energy, Norway; Mohammed bin Hamad 
Al-Ruhmy, Minister of Petroleum and Gas, Oman; Abdullah Bin 
Hamad al-Attiyah, Minister of Energy and Industry, Qatar; 
Buyelwa Sonjica, Minister of Minerals and Energy, South 
Africa; and Maria van der Hoeven, Minister of Economic 
Affairs, The Netherlands.  Russia, Venezuela, Mexico, China, 
India, Spain, Austria, Ecuador, Indonesia, South Korea, 
Turkey among them, were presented at the non-Minister level. 
The Executive Director of the International Energy Agency, 
Nubuo Tanaka; Abdalla El-Badri, Secretary General of OPEC; 
Noe van Hulst, Secretary General of the International Energy 
Forum Secretariat; and Andris Peibalgs, Energy Commissioner 
of the EU, also attended. UK Prime Minister Gordon Brown 
opened the meeting, with Secretary of State for Energy and 
Climate Change, Ed Miliband as the chair. 
The Papers - Price Volatility A Given 
¶3. (SBU) In preparation for the meeting, HMG and the 
 
LONDON 00000227  002 OF 004 
 
 
Government of the Kingdom of Saudi Arabia commissioned from 
Cambridge Energy Research Associates (CERA) a paper to 
explore the question of price volatility, as well as 
conducting its own analysis of the oil markets. Daniel Yergen 
presented CERA's paper, which concluded that there will 
always be volatility in the oil market and that spare 
capacity will increase in the short term because of falling 
oil demand and as supply from current investments come to the 
market. In the medium term, however, low prices and financial 
constraints may hinder investment. Spare capacity will start 
to erode, and the oil market will begin to tighten in the 
first half of the next decade.  CERA argued that the best way 
to reduce volatility in the oil market was to increase the 
quality and frequency of global oil information, particularly 
related to demand and supply. 
Prime Minister Brown Calls for Transparency 
¶4. (SBU) In his opening remarks, PM Brown called for 
increased transparency about production supplies and 
investment plans, diversification away from oil, investments 
in renewable energy sources, coordinated government action on 
price stability and work with the IMF and the World Bank to 
help people in the poorest countries adjust and respond to 
commodity price volatility.  He also called for energy 
producing and consuming nations to reaffirm that they will 
work together on energy issues as a crucial part of promoting 
growth and stability in the world economy, in the run-up to 
the London Economic Summit of the G20 in April.  Brown's full 
remarks can be found at http://www.number10.gov.uk. 
Price Volatility Deterring Investments 
¶5. (SBU) Representatives from the oil-producing countries, 
and in particular Saudi Arabia, Bahrain, Iraq, and Iran, 
argued that first the excessive volatility of prices this 
summer and then the low oil prices registered in recent weeks 
have derailed investment projects in energy and the current 
financial situation is stifling innovation.  Saudi Minister 
Ali I Naimii argued that only when prices are in the $70-75 a 
barrel range are there sufficient incentives to undertake new 
projects.  He also chided European governments for imposing 
high taxes on petroleum for consumers, which affects demand. 
When prices per barrel spike, European governments should 
adjust tax rates to ensure demand remains constant.  Bahrain 
Minister for Oil and Gas Abdul Hassain Ali Mirza warned that 
low oil prices are more dangerous that high prices, since 
international and national oil companies will shelve 
investment plans, which would set the stage for even higher 
spikes in prices when global economies begin to recover.  He 
also argued for oil prices to be "fixed" at a floor level of 
$70. 
¶6. (SBU) Kupfer, in his remarks, cautioned about any target 
price or intervention by governments to set a price and 
emphasized the importance of well-functioning markets and 
effective regulation (not over regulation). He also noted the 
need for greater market data transparency, especially on 
inventories, through the Joint Oil Data Initiative or JODI; 
the need for continued investment, especially in light of 
production decline rates and surplus capacity requirements; 
and the removal of market-distorting energy price subsidies. 
¶7. (SBU) Tanaka from the IEA urged producing consumers to 
take on a larger commitment to invest. He warned that there 
is a real risk of a supply crunch once demand recovers.  He 
also urged countries to seriously pursue more energy 
 
LONDON 00000227  003 OF 004 
 
 
efficiency, and highlighted the Clean Energy New Deal called 
for Poznan.  Saudi Minister Naimi said that Saudis intend to 
increase production to 12.5 million barrels a day by mid-year 
2009, regardless of the financial situation.  Iraqi Minister 
al-Sharistani said Iraq is committed to increasing its 
production by 2 million barrels per day within 4-5 years, and 
to 6 million barrels per day within 10 years. 
Around the table: Speculators to Blame 
¶8. (SBU) Saudi Minister Naimi was the first to claim that 
speculators triggered much of the price spikes registered 
over the summer 2008.  Fundamentals of the sector alone were 
not responsible for the excessive price volatility; the 
behavior of the futures market indicated the interference of 
speculators, he claimed.  Officials from Kuwait, Italy, 
Japan, Algeria, Iran, India, Norway, China, South Korea, 
Spain, and Russia  also placed the blame on speculators for 
the excessive price volatility, though none of the delegates 
provided data to substantiate these claims, and called for 
some regulation of the futures market for oil and gas. 
¶9. (SBU) Other delegations did not agree on the role of the 
speculators.  Nubuo Tanaka, Executive Director of the 
International Energy Agency pointed to the fall in demand as 
the main cause in the excessive price volatility.  Global 
energy demand will contract in 2008, the first time this has 
occurred since 1983, he said.  The Saudi minister did concede 
that oil price volatility was also exacerbated by the rapid 
de-leveraging of assets in global financial markets. 
¶10. (SBU) Inadequate transparency, such as uncertainty about 
inventory levels, rather than speculation, was a significant 
cause of the excessive price volatility argued Acting Deputy 
Secretary Kupfer. He agreed on the need for effective 
regulation of energy markets but warned against 
over-regulation. Without sufficient spare capacity, shocks to 
the system become magnified, fueling the volatility, he 
stated. Maintaining investment flows is therefore important. 
Diversified energy portfolios, including renewables and 
energy efficiency, are also important checks on volatility. 
He also noted that the ten-year average price of oil was in 
the $40/barrel range, and that current prices are consistent 
with this trend line. 
Others Also Call for Transparency 
¶11. (SBU) PM Brown laid down the challenge in his remarks for 
oil producing and oil consuming countries to be more 
transparent in the collection and release of data. Delegates 
across the board appeared to be in consent about the need for 
greater transparency. Italian Minister Scajola specifically 
called for greater adherence to JODI, which covers data on 
production, refining, demand and stocks of seven product 
categories: crude oil, LPG, gasoline, kerosene, diesel oil, 
fuel oil and total oil.  Noe van Hulst from the International 
Energy Forum Secretariat in his remarks drew attention to his 
organization's "scorecard" on compliance with JODI and urged 
participants to undertake a more thorough approach to JODI in 
the year to come.  Kupfer also called for countries 
represented at the meeting to enhance their reporting to 
JODI.  He noted that CERA's report concluded that the 
transparency of the market was the greatest factor in 
minimizing volatility. 
Fossil Fuel Here to Stay 
¶12. (SBU) Investment in renewable energy will create 
stability in oil markets, as shocks to oil supplies would 
 
LONDON 00000227  004 OF 004 
 
 
have less impact.  However, all the participants agreed that 
fossil fuels will remain the mainstay of energy supply for 
several decades.  Saudi Minister Naimi claimed that fossil 
fuels will still be 80 percent of energy sources in 2030, but 
also urged that investment in renewables be undertaken.  He 
stated that Saudi Arabia was interested in CCS and making 
significant investments in renewables, including solar, and 
wryly noted that some day, the Saudis will be exporting 
energy in megawatts as well as barrels.  He also noted energy 
independence as being a fallacy and that ground has been lost 
due to discriminatory policies and actions by some countries. 
 
¶13. (SBU) PM Brown highlighted the importance of carbon 
capture and storage (CCS), in his remarks, and noted that 
Britain will take part in the first of the pilot CCS 
programs.  Norway, the Netherlands, Spain also echoed the 
importance of CCS as any part of any overall energy strategy. 
 
Energy Initiative for Hard Hit Countries 
¶14. (SBU) South African Minister Buyelwa Sonjica called for 
greater assistance to countries hit hardest by excessive oil 
price volatility, and noted that the Jeddah meeting in June 
pledged support for these countries.  Norway also echoed this 
call.  Italian Minister Scajola noted that Italy, during its 
2009 G8 Presidency, intends to include energy poverty, with a 
particular focus on Africa, as one of its agenda items. 
China called for greater technology transfer and diffusion of 
energy efficient technologies to developing countries. 
Importance of the International Energy Forum 
¶15. (SBU) There was a general consensus that the 
International Energy Forum (IEF) should be the venue for the 
post-Jeddah and London follow-up consumer-producing dialogue. 
The UK proposed and the delegates consented to the formation 
of an experts' working group to examine the questions of oil 
price volatility, supply and demand.  IEF was tasked to 
identify, and find solutions to, the uncertainties that are 
hampering investment decisions.  The UK suggested (without 
much support) advancing the 2010 IEF Ministerial, scheduled 
for April in Mexico. 
¶16. (U) DOE cleared this cable January 22. 
 
 
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